PMI Removal Can Save you Bundles
If you’re here, reading about PMI on a real estate appraisal website, our guess is that you’re want to know about PMI removal on your existing mortgage.
PMI Cancellation falls into two categories: borrower-initiated termination (you must take action) and automatic termination (when the bank automatically terminates your PMI because you reached the magic number of payments on your mortgage).
About PMI (Private Mortgage Insurance)
PMI (Private Mortgage Insurance) is an insurance product you will normally be required to purchase when you put less than 20% down on the purchase of your home. The less you are able to put down, the more your PMI will cost you each month.
Do I Qualify for PMI Cancellation?
If you’ve owned your home for a while, or the real estate market in your area has recently appreciated, the answer for whether or not your mortgage qualifies for PMI removal is . . . maybe, probably or yes. Read on for a summary of your rights, and active steps you can take to cancel PMI on your mortgage.
Remember, the longer you wait to take action, the more of your money the bank collects.
The Homeowners Protection Act
PMI cancellation is governed by the Homeowners Protection Act, which was signed into law in 1998 and went in effect in 1999.
This act establishes rules for the borrower-initiated termination or automatic termination of PMI on a mortgage. These protections apply to certain home mortgages signed on or after July 29, 1999 for the purchase, initial construction, or refinance of a single-family home. These protections do not apply to government-insured FHA or VA loans or to loans with lender-paid PMI.
Please read the full act, provided in PDF form, above, for the specific details of the protections established by the act. Our summary here of the two basic mortgage insurance cancellation scenarios is for your convenience only.
PMI Cancellation: Borrower-Initiated Termination:
If you are approaching to 80% LTV (Loan to Value) mark on your loan, meaning you are approaching 80% equity in your home, you can request termination of your PMI as long as you meet certain criteria:
- You need to be current on your loan.
- You must have a good payment history.
- The property may not have any subordinate liens (other loans, including Home Equity Loans (aka HELOCs)) on the property.
- Your equity in the property must be at, or above, 80% LTV (Loan to Value).
Under this scenario (approaching, or at 80% LTV), your PMI will not be automatically canceled. You will need to request PMI cancellation in writing to your mortgage company and you will most likely be required to provide evidence of the current market value of your home. This market value should be determined by a real estate appraiser and includes an analysis (and substantiation) of the value of the property based on the values of similar properties in the area. This determination of value is called an appraisal.
The basic steps to take to cancel your PMI include:
- Contact your mortgage company and ask some questions:
- Ask them to send you PMI cancellation documentation, or request a link to the information on their website.
- Ask if an appraisal is required.
- If an appraisal is required, ask if they have a list of required (or approved) appraisers that you must use. We do not believe that banks should have an approved appraiser roster for PMI cancellation because an appraisal must be an unbiased opinion of value in order to be valid.
- Ask where to send your cancellation letter. It may be the same address where you send your monthly payment and it may not be – be certain of the address and save yourself a headache later.
- Order an appraisal.
- If your appraisal shows that you are over the threshold for mortgage insurance cancellation, write a letter to your lender requesting the cancellation. The letter should include the appraised value of your home, the current balance of your loan (as of your most recent statement), and the statement saying that you want to terminate PMI. Make sure you include a copy of the appraisal with your PMI cancellation (PMI termination) letter and make sure you include your loan number and property address for reference!
- Send it with some sort of receipt required – either signature required, overnight mail, or return-receipt, so that you have proof that you have requested PMI cancellation.
- Follow-up after you’re certain the letter has been received, obtain contact information for who will handle your request, and keep on them until they’ve completed your request and canceled your PMI.
Remember, even if this seems like a lot of work, it’ll probably only take an hour and that hour will be time well spent if you can save yourself $40, $60, $100 or more per month on your PMI. Now that you have done your research, you can proceed with trying to get your PMI canceled.
If you live in Austin, Texas or one of the surrounding communities (in Travis, Williamson, Hays, Caldwell or Bastrop County), please use Appraisal IQ for your appraisal.
No appraiser can suggest that he or she will arrive at a pre-determined value, so the appraised value of your home may or may not be sufficient (yet) to request PMI removal.
If your appraisal comes in lower than the threshold value for PMI cancellation, you can still be confident that your money has been well spent – you now know the current market value of your home and have a better idea of the timeframe within which you may reach the required 80% LTV and can plan accordingly. Watch your local market area reports (on TheAppraisalIQ.com, or your local newspaper) so you understand the housing trends in your neighborhood. When the market is up, jump on it!
PMI Cancellation: Automatic Termination:
If you are approaching 78% LTV (loan to Value) on your loan, your PMI should be automatically terminated. The baseline criteria for automatic termination include (taken directly from the Homeowners protection Act, emphasis in bold added by Appraisal IQ):
“The Act requires a servicer to automatically terminate PMI for residential mortgage transactions on the date that:
- the principal balance of the mortgage is first scheduled to reach 78 percent of the original value of the secured property (based solely on the initial amortization schedule in the case of a fixed rate loan or on the amortization schedule then in effect in the case of an adjustable rate loan, irrespective of the outstanding balance), if the borrower is current; or
- if the borrower is not current on that date, on the first day of the first month following the date that the borrower becomes current (12 USC 4902(b)).
Additional PMI Payments
If PMI is terminated, the servicer may not require further payments or premiums of PMI more than 30 days after the termination date or the date following the termination date on which the borrower becomes current on the payments, whichever is sooner (12 USC 4902(e)(2)).
There is no provision in the automatic termination section of the Act, as there is with the borrower-requested PMI cancellation section that protects the lender against declines in property value or subordinate liens. The automatic termination provisions make no reference to good payment history (as prescribed in the borrower-requested provisions), but state only that the borrower must be current on mortgage payments (12 USC 4902(b)). “
You can directly calculate the date when your PMI should automatically cancel by dividing your current loan balance by the original mortgage amount. When what you owe drops below the 78% threshold, your PMI should automatically terminate.
If it doesn’t, call the lender and ask why it hasn’t, and when it will. Arm yourself with a copy of the Homeowners Protection Act so that you know your rights. Send a follow-up letter (keep a copy, and a receipt as proof of notification) that your PMI should have been automatically terminated as of such-and-such a date. Demand that they send you a response in writing as to why they have not terminated your mortgage insurance premium.
Remember, it is your money on the line! PMI Cancellation Benefits YOU!
